Exploring Poverty Indicators 5th - 9th December 2011, Rome

Outline  What is poverty?  Dimensions of poverty  Overview of the Cost of Basic Needs (CBN) poverty line approach  Construction of the poverty line  Determining the cost of the food basket  Aggregate poverty indicators

What is poverty? The World Bank: “Poverty is a pronounced deprivation in well-being… it includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity” The UN: “…poverty is a denial of choices and opportunities… a lack of basic capacity to participate effectively in society”

What is poverty?  Poverty is therefore an abstract concept with multiple dimensions  There is no consensus on how to measure poverty, even when examining only one dimension

Dimensions of poverty  Single or multiple dimensional measures  Example: Human Development Index (life expectancy, education, living standards)  Material or non material  Example: Income, assets, education, freedom  Objective or subjective  Participatory Poverty Assessment  Uganda; both objective and own assessment of poverty  Means to meet basic needs  2200 kcal per day or means to achieve 2200 kcal per day

Dimensions of poverty  All of these dimensions are important for comprehensive poverty analysis and for creating poverty profiles  In this training we will focus on monetary poverty – whether an individual has enough resources to cover his/her basic needs.  This is the approach that gets the most attention and also the most demanding to calculate

Cost of Basic Needs (CBN) approach  The CBN approach attempts to establish the cost of a bundle of goods that ensures that a household’s basic needs are met  The cost of those goods is used to establish a poverty line

CBN poverty line  The poverty line reflects the monetary cost of what is considered to be the minimum required in order to remain out of poverty  It is defined in relation to the living standards of a particular society at a single point-in-time  The poverty line must adapt to changes in the standard of living of the society  The poverty line has two components:  Food  What is the minimum caloric requirement for a household?  Non-food  What are the essential non-food purchases and what is their total cost?

Steps in calculating the CBN poverty line  Determine the minimum calorie requirement  Define the basket of goods to attain that requirement  Estimate the cost of obtaining the food basket (food poverty line)  Estimate the non-food component

Data required for creating the food poverty line  Quantity consumed  Converted into a common unit such as kilograms, liters, etc.  Price for each item  Calorie content of each food item  Usually kilocalories / 100 grams This should all look familiar!!!

Using consumption data instead of income data  Fluctuations in income data are typically smoothed, hiding the current status  Consumption is more representative, particularly in agricultural economies  Income data is not easily gathered for many income activities, such as self-employment  Households are more likely to truthfully report their consumption than their income  Consumption data is more expensive to collect but is conceptually clearer

Consumption aggregate  The consumption aggregate is the value of all goods and services used by the household (food and non-food items)  The value of food consumption includes:  Expenditure on purchases  Consumption of own production  Gifts and in-kind food  The consumption is then converted into a monetary value  The aggregate aims to give an estimate on the welfare level in the household using the value of their consumption; therefore savings do not contribute to this defnition of wealth

Non-food component  The non-food component includes items such as:  Non-food consumable goods  Durable goods  Housing and shelter  Other housing expenses  Transportation  Education  Health  Large purchases are not included (for example a car); Instead ‘user values’ are utilized which require information on the lifespan of assets, their age, and their value at the time of purchase and now

Food basket  The basket should reflect the basic food needs as commonly eaten by the poor  First define “the poor” reference population; for example:  The poorest 50%  The 5th and 6th decile of the consumption aggregate  Chose deciles to avoid the poorest part of the population that will have a non-representative consumption pattern  Rank all individuals by household consumption per capita and choose the reference population

Establish the food basket for the reference population

Calculating the food poverty line

Poverty indicators  Use household consumption per capita and compare to the poverty line for each household to classify a household as poor Poverty headcount: share of population below poverty line Poverty gap: how far are the poor from the poverty line

Poverty indicators  We can use the food poverty line to analyse the percent of the population with food consumption below the food poverty line  To create this indicator, compare the household food consumption aggregate against the food poverty line and create a bivariate variable:

Example output DistrictPoverty Head Count (%)Poverty Gap (%) District A District B District C0.0 District D District E District F District G District H District I National

Example output Strata Population below poverty line (%) Population with food consumption below food poverty line (%) National Zone Urban Rural Regions Districts A B 18.1 C D E